RIN prices tracked upward as a deteriorating margin environment continued to underpin buying, while oversupply fears limited gains. The end of October proved volatile as RINs gave back most of their gains after rebounding off the lowest level in over three years on October 10. November saw renewed buying amid persistent diesel losses.
The November 17 release of October RIN generation data showed a record 2.1 billion credits generated. Total D4 generation of 6.4 billion credits eclipses the total advanced mandate for 2023 by 2.62 billion credits. Should D4 generation continue at this pace the market will face a glut of 2.16 billion 2023 vintage D4 credits.
Diesel weakness and CBOT strength saw the soybean oil-to-heating oil (BOHO) spread widen to $1.14/gallon on November 21, a level not seen since early October. The BOHO spread started November as narrow as $0.75/gallon, the lowest level in over a year. A narrower BOHO spread implies stronger biodiesel margins which is bearish the D4 RIN all else equal.
Renewable diesel margins tracked diesel lower in early November to the lowest levels in a month, before recovering the bulk of the losses as diesel turned positive. The exception was soybean oil-based renewable diesel margins which sunk to the lowest levels in nearly four months.
The D3 market bifurcated during the first three weeks of November, with 2023 D3s posting losses, while 2024 vintage D3s posted modest gains. Insufficient RIN generation and the lack of a Cellulosic Waiver Credit (CWC) had been supporting the 2023 market, yet the market began to price in the increased likelihood of deferred 2023 compliance. Total D3 RIN generation is running around 19% short of the cellulosic mandate.
RIN markets bifurcated in November as a deteriorating margin environment drove a recovery in D4 and D6 credits, while 2023 D3s tracked lower on prospects of deferred compliance. The supply glut of D4 credits limited gains and saw spreads narrow.
The market turned cautiously bullish as the BOHO spread widened off the lowest level in more than a year to reach as wide as $1.14/gallon by November 21 as CBOT soybean oil futures firmed. Current year vintage D4 credits recovered 8.4c/RIN, or 11%, since reaching the lowest levels in three years on October 10.
Current year vintage D4 RINs rose 6.3c, or 7.9% since the start of November. The D6 market climbed 6.8c, or 8.6%, over the same period with the D4/D6 spread narrowing to flat.
A narrower D4/D6 spread indicates tightness in D6 supply. In the absence of a sufficient supply of D6 credits, D4 and D5 credits from the advanced category can be used to satisfy compliance obligations.
We expect the 2023 D4/D6 spread to hold flat as the D4 RIN is the main vehicle of compliance for the total renewable fuel mandate.
Current year D4 RIN generation is on pace to exceed the advanced mandate by 2.62 billion credits, while D6 generation is on pace to fall 460 million credits short of the mandate. Barring an upward adjustment to the advanced category, D4 RINs will make up the bulk of the RIN bank moving forward.
The 2023 vintage D4 market started November as low as $0.79/RIN as the BOHO spread stood at $0.75/gallon marking the lowest level in over a year. Diesel weakness and strength in soybean oil markets saw the BOHO spread widen to $1.14/gallon by November 2, the widest level in over a month and half.
The D6 market rebounded 6.8c/RIN, or 8.6% since the start of November, while the D4/D6 spread narrowed to flat from 0.1c/RIN the month prior. D6 RIN generation is on pace to fall short of mandated volumes by at least 460 million credits, though ample D4 RINs are available to cover the D6 compliance shortfall which will keep the D4/D6 spread near parity.
The 2023 D3 market shed value despite flagging D3 RIN generation and the lack of a CWC credit. The 2023 vintage D3 RINs shed 12.5c/RIN, or 3.6% since the start of November to $3.40/RIN.
The C23/C24 spread narrowed to just 17c/RIN after starting the month at 39.5c/RIN and reaching as high as 61.5c/RIN during October. This marks the narrowest spread since late June 2023. The prospect of deferred 2023 compliance drove strength in 2024 D3 markets.
D3 RIN generation slipped under the upper limit of the five-year average in October, running 19% short of the 840-million-gallon 2023 mandate. D3 generation is on pace to fall 159 million credits short of the final mandate. With no Cellulosic Waiver Credit in place and a record low RIN bank, we expect D3 RINs to remain at elevated levels barring an early implementation of eRINs and/or the issuance of a CWC under the EPA’s waiver authority.
The 2022 vintage market posted identical losses to their 2023 counterparts, and the inter-vintage spread held stable at 1c/RIN.
The 2023 D4-D6 spread spent the bulk of November at flat after averaging 0.2c/RIN during the month of October. We expect the 2023 D4/D6 spread to hold flat as the D4 RIN is the main vehicle of compliance for the total renewable fuel mandate.
A wider D4-D6 spread implies a looser D6 supply as the D4 credit is the next vehicle of compliance in the absence of sufficient D6 RINs or the ability to use carryover credits. Conversely, a narrow D4-D6 spread implies a tight supply of D6 RINs. The theoretical cap on the spread is parity though D6s have traded at modest premiums to D4 credits in extreme circumstances.
The inter-vintage D4 RIN spread proved more volatile over the course of November as December compliance drew near. The spread reached as wide as 5c/RIN before diving to just over flat and then recovering to 3c/RIN. The spread spent the bulk of October at 2c.
We expect further volatility in diesel throughout the fourth quarter to drive credit markets as one of the main vehicles for buttressing renewable diesel margins. RIN generation should remain at elevated levels even if Q4 startups are delayed or run at reduced rates. Poor margins have seen the closure of at least one small biodiesel plant.
The 2022-2023 D6 spread held flat following a volatile September which saw the spread collapse to 2c/RIN from 12.5c/RIN.
The 2022 D4-D6 spread also proved volatile throughout November, reaching as wide as 5c before diving to flat and recovering to 3.5c. The spread averaged 3.3c over the first three weeks of November, up from 2c in October. The 2022 D4- D6 averaged 2.4c in September. The spread averaged 2.4c/RIN in August, 5.5c/RIN in July, 9.6c/RIN during the month of June, and 9.8c/RIN during the month of May.
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